Iraq is predicted to be the fastest growing economy in the region and according to IMF figures and trending economic forecasts it is expected that over 2 – 3 years it will reach an annual growth of 7,5%. Iraq is gradually emerging into a more robust and prosperous economy, keen on integrating itself into the international economic community. The economic potential of Iraq is enormous. Even considered to be one of the world’s wealthiest nations radiating with potential for years to come.

Greater volatility is also a variable that needs to be factored into the overall strategy and decision making before going to market. A balanced and objective evaluation on volatility could include a closer look to following:

–          the political risks

–          the economic risks

–          bribery and corruption

The Iraqi government is still recovering following the hardship of fighting ISIS who nearly captured one third of the country´s territory in 2014. Alongside the UN and the international Community in general, the Iraqi government is focused on ongoing programs for stabilizing the political landscape and to prevent terrorist’s activity from returning. The relationship between the Iraqi federal government and the Kurdish region of Iraq is similarly strengthening following the 2017 referendum on independence. Issues on border control, custom agreement and shares of the federal budget are issues the two governments are aiming to resolve.

Under current Prime Minister Abadi the Iraqi Federal Government has gained unprecedented stability. Iraq has in recent times made significant legal and technical progress passing numerous business and economic laws ranging areas including financial institutions, foreign investments, intellectual property and telecommunications. In addition, Iraq is probably the only country in the Middle East which has virtually no restrictions on foreign investment.

However, bureaucracies, poor governance, and the inconsistent manner in which regulations are interpreted and applied are still dominating the scene and the overall political situation remains fragile in Iraq representing a gloomy picture for a risk-averse investor. 

Iraq is the 43rd largest export economy in the world. In 2017, Iraq exported $60.8B and imported $29.7B, resulting in a positive trade balance of $31B(OEC). In 2017 the GDP of Iraq was $192B (DK is $324B) and its GDP per capita was $16.9k (DK is $51,4k). Iraq’s economy is dominated by oil and gas and close to 90% of government revenue derives from this sector, which makes the country vulnerable to oil price falls (as in 2014), despite it has 10% of the world’s proven oil reserves and 20% of the crude oil reserves in the Middle East. In 2018 real GDP growth (IMF) was just 0.6%, with forecast growth in 2019 of 2.8%.

In particular Iraq has economic challenges after the liberation of territory from ISIS. Unprecedented damage to infrastructure and property is according to the World Bank’s Damage and Needs Assessment estimated at cost of rebuilding at US$88 billion over 5 years.

The Government of Iraq has made commitments over recent years to carry out structural economic reforms to diversify the economy and promote the private sector. However, implementing reforms has proved challenging, particularly as higher oil prices has provided a financial cushion and government operational expenditure and forecast budget deficits has instead actually increased. As for doing business and the practicalities of drawing up and enforcing contracts, Iraq’s commercial laws are outdated and mismatched in comparison with western standards.

Overall the economic situation also remains fragile in Iraq. Despite this, commercial opportunities are significant as the country embarks on rebuilding its infrastructure and main institutions. It is potentially one of the world’s wealthiest nations, with vast reserves of hydrocarbon wealth, a large population (39 mill) and a young demographic.

Corruption in Iraqi business and political circles is evident. In fact, Iraq ranks the seventh most corrupt country in the world according to transparency international corruption perception index. Bribes have been known to be demanded by public officials for social services and security. Public funds and pledges have been abused and mismanaged by public servants.

However, Bribery is illegal. It is an offence for Danish nationals to bribe anywhere in the world. When dealing with bribery, lubrication, gift giving and representation, Danish companies are not only subjected to Danish anti corruption laws that governs the region or country  but also the laws that governs the region or country in which the businesses are conducted or established.  The Iraqi government has made efforts to handle bribery and corruption. The Iraqi Commission of Integrity is mandated to investigate government corruption and provides the means for anonymous reporting of corruption. Unfortunately, limited punitive action is taken to face governmental corruption allegations which is why corruption remains. Corruption remains a significant risk for Danish companies operating in the Iraqi market.